As analysts expected, the State Property Fund's offer of a stake in Ukraine's third-largest steel mill Azovstal generated little enthusiasm among investors. In fact, the stake, in a company which has been proclaimed a Ukrainian blue chip, attracted not a single bidder.
The SPF offered a 20.56 percent stake in Mariupol-based Azovstal at Hr 163 million. Whoever won the tender would have been required to invest Hr 25 million in upgrading the plant, as well as pay off a wages backlog of Hr 5 million.
A source at the SPF told Ukrainian News that the stake's starting price was 'obviously too high.'
Analysts, however, had long predicted the SPF would have difficulties finding a buyer for a large stake in Azovstal. Years of stagnation had taken the shine off the once-great company, they said.
With capacity of 7 million tons a year, Azovstal is the country's third-largest steel maker. Located close to all its raw materials suppliers and to the Sea of Azov, its product can be exported relatively cheaply. And it has a good domestic customer base among Ukraine's shipbuilders and pipe rolling plants.
Altogether, Azovstal is a potential world-beater, said analysts. But it has been horribly mismanaged, to the extent that all but the bravest of investors would keep well away. Analysts say that the mill's profits are being sucked out by a web of intermediaries that have appeared around the mill over the past few years.
These intermediary trading companies, backed by influential businessmen, buy the factory's product at dumping prices to resell later at a handsome mark-up. The difference ends up in bank accounts abroad, with little cash making its way back to the mill. An owner of a 20 percent stake would face what the investment consultants call a high corporate risk – meaning they'll find it all but impossible to influence management of the mill.
The mill's outdated technology and shrinking export market are also major problems, steel industry experts say.
Funds generated from the sale of the stake in Azovstal would have counted towards the Hr 2.5 billion in privatization revenues that the fund said it would raise this year – a target that already looks unattainable.
Turning to another issue, President Leonid Kuchma opposes the re-nationalization of privatized companies in which investors have failed to meet their investment commitments, according to SPF head Oleksandr Bondar. The issue mainly concerns several recently privatized regional energy distributors, or oblenergos, where the government says the new owners have failed to live up to their investment promises. Instead of repossessing the shares, the SPF will most probably fine the offenders, Bondar said.
Privatization results
In more bad news for the SPF, the state privatization agency failed to sell stakes in the Tsentralny and Poltava ore-enrichment plants. Again, the sales failed because no bids were submitted.
However, the fund did manage to sell a 6.14 percent stake in the Zaporizhya-based Ukrhrafyt to Dzherelo finance company for Hr 1.23 million. Ukrhrafyt makes raw materials used in production of non-ferrous metals.
Privatization snapshot
The SPF said on Feb. 3 it would sell a 25 percent stake in the Zaporizhya ferroalloy factory (ZFF) via the stock exchanges instead of through a tender, as was planned earlier. The plant produced some 358,000 tons of ferroalloys last year, a 34 percent increase on 1998's output. Last year, the factory's output represented 39.7 percent of Ukraine's total ferroalloy production.
Some 58 percent of the company has been sold. According to Ukrainian News, the Irish company ETG is the factory's major partner. Some 25 percent in ZFF is also owned by the Washington Foundation.
